Facebook’s parent Meta Platforms will release its first-quarter financial results on Wednesday afternoon. Investors are nervous about a reprise of the badly received fourth-quarter report.
Meta Platforms Inc. (NASDAQ: FB), commonly also known as Facebook, has enjoyed robust earnings and revenue growth during the past two years amid the COVID-19 pandemic. But now, the company is facing dual crises. Growth is slowing sharply in its core social networking businesses, including Facebook. And the company’s new strategy of focusing growth on the metaverse is running into major challenges from regulators and some shareholders. The biggest one: a Meta shareholder recently won regulatory approval for a third-party evaluation of the potential psychological, human rights, and other harms of the metaverse to users. The evaluation will be one issue that Meta shareholders vote on at the company’s annual general meeting, and a negative vote could threaten the company’s new strategy.
Among other things, Meta issued guidance for the March quarter that fell well short of Wall Street’s forecasts, as management disclosed that revenue growth has been slowed significantly by new privacy rules at Apple that make it harder to both target advertising and measure the effectiveness of ads. Analysts expect the company to report a significant year-over-year (YOY) decline in earnings per share (EPS) and the slowest pace of revenue growth in at least three years.
Meta said that the Apple changes would reduce 2022 revenue by about $10 billion.
The company also called out the challenges of competing with TikTok in the market for short videos. Meta has launched a rival service called Reels, which appears on both Facebook and Instagram, but the company has said its ability to make money from Reels lags behind other elements of its platforms, like the news feed and “stories.”
For the March quarter, Meta projected revenue of between $27 billion and $29 billion, below the former Wall Street consensus forecast of $30.1 billion. The forecast implies year-over-year growth in the 3% to 11% range. The current Street consensus call is for revenue of $28.3 billion, up 8%, with profits of $2.56 a share.
No doubt there will be scrutiny of the June quarter guidance. The Wall Street consensus call is for revenue of $30.7 billion, up 6% from a year ago, with profits of $2.81 a share.
There are many issues for Meta to navigate. Investors will be looking for an update on the company’s progress in routing around Apple’s “App Tracking Transparency” policy, which makes it harder for Meta to use the information on consumer activity on iPhones to target ads. They’ll also be listening for any updates on progress in the monetization of Reels.
The Street is also worried about the overall state of the digital advertising industry. Signs of softening have emerged in Europe as a result of nervousness tied to the Russian invasion of Ukraine, supply chains remain snarled, inflation is high, and worry is growing about the potential for an economic slowdown later this year. And while it is early to expect much solid news, investors will want a status report on the company’s gigantic investment in the metaverse.
The biggest issue is likely to remain how the company responds to the challenges posed by Apple’s policy change, he said. “A key focus on Meta remains the company’s ability to develop, test and deploy a post-privacy ad attribution model, and our checks suggest that this will more likely be a 2023 development,” Mahaney wrote.
RBC Capital analyst Brad Erickson wrote that half of the advertisers he spoke about within a recent round of channel checks were still reducing spending on Facebook. Some investors believe that the low end of the range of forecasts management gives for second-quarter revenue could point to a year-over-year decline, he said.
“Numbers aside, we think Meta will be aiming to establish a tone of recovery …while also trying to give investors a view towards improving Reels monetization and a stable outlook around its positioning relative to user privacy and the Metaverse,” he wrote. Erickson also expects commentary on challenges such as weakness in Europe and a slowdown in the launch of ad campaigns following Russia’s invasion of Ukraine, saying both factors could “weigh incrementally” on the company’s advertising business.
Meta Short (Sell)
Enter at: 174.47